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In 2016, the Internet of Things Fuels New Revenues

Blog: Software AG Blog - Reality Check

SAG_LinkedIn_MEME_913x560_Search-New-Revenues-IOTThe manufacturing industry is changing at breakneck pace, with the traditional product-based sales and service model evolving into one using the Internet of Things (IoT) to better focus on customer requirements.

This year more manufacturers are providing pricing models based on a combination of products and services to produce specific outcomes that will match customer requirements, in order to compensate for static growth and hard fought margins. The search for new revenues has led manufacturers to embrace what is being called “servitization.”

“In essence servitization is a transformation journey – it involves firms (often manufacturing firms) developing the capabilities they need to provide services and solutions that supplement their traditional product offerings,” explained Andy Neely, director of the Cambridge Service Alliance at the University of Cambridge.

But the ability to “servitize” effectively, and to monetize the process, requires a complete business transformation—one which includes not just offering a product and a service, but also understanding and providing what the customer needs from your product. Technology is key and the IoT is the crux.

A good example of a servitized product is a car. The capital outlay for a new car is big; cars are expensive to service and they rapidly depreciate in value. But if a manufacturer were to offer a new car on a usage and performance requirement basis, where heavy users were guaranteed that they would have access to a car 100% of the time for a certain monthly price point, it might find a new market for its cars. IoT-enabled sensors can report back to the manufacturer how far you have driven, the speeds you went, the heat of the engine and the quality of the fluids. The manufacturer would maintain the car, replacing it with another if it needed fixing or servicing.

Manufacturers will begin pursuing this in earnest, focusing on providing pricing models for equipment and products based on controllable outcomes. For example, if your car needs to be serviced but you need it immediately after work, the manufacturer could send someone over to your parking garage to pick it up—and leave an identical replacement car for you to use. In order to provide this seamless 100% availability the manufacturer might have to dedicate two or three cars to your account, but the price you pay would reflect that.

If you agreed to a 99% availability contract, the manufacturer might send someone to service your car when it knows that it will be in the garage for the next few hours. It can tell this by having access to your calendar, which is linked to your car’s computer using IoT.

Servitization is already being used in selected industries, such as industrial equipment, power generation and HVAC providers.

The IoT is instrumental; sensors providing rich data to manufacturers will enable them to find new ways to offer meaningful and personalized services to customers—and will provide manufacturers with all new revenue streams.

The post In 2016, the Internet of Things Fuels New Revenues appeared first on Reality Check.

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